AirAsia responds to auditor's unqualified opinion, says confident in successful biz continuation

AirAsia is confident of the successful continuation of the business. While the first half of 2020 has been extremely challenging, group CEO Tony Fernandes said in recent weeks, countries around the world have resumed domestic travel and are gradually reopening international borders in recognition that air transport provides the connectivity that is essential for the resumption of economic activities. According to him, the formation and discussion of “travel bubbles” and “green lanes” with key economic partners with a low infection rate and proven pandemic curbing systems, is a step in the right direction. With domestic travel now allowed, the airline has been resuming flights on a staggered yet steady basis since late May.

"In support of governments’ efforts to revive domestic tourism and ultimately stimulate economic recovery, AirAsia has aggressively launched large-scale promotions and sales campaigns," Fernandes said. He added that he is also encouraged by the higher-than-anticipated sales the promotions and campaigns have generated. His statement comes amidst emphasis of matter by auditor Messrs Ernst & Young on material uncertainty relating to going concern in respect of the company’s audited financial statements for the financial year ended 31 December 2019. This was made in a Bursa filing on 7 July.

Emphasis of matter is a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements.

According to Fernandes, AirAsia registered its highest post-hibernation sale on 7 July, with about 75,000 seats sold in a single day, "reflecting pent-up demand and signalling green shoots of recovery". Fernandes added that it also sold over 200,000 AirAisa Unlimited Passes since its recent launch for domestic Malaysia, domestic Thailand and AirAsia X.

The company has also witnessed a 60% in group-wide load factor in June, with AirAsia Malaysia's load factor reaching 65%. For July, Fernandes said the company expects to achieve a higher load factor of 70% despite tripling its capacity month-on-month to cater to the increased demand. Its logistics arm, Teleport, also grew 49% year-on-year in the first quarter of 2020. This growth was supported by a strong emphasis on transporting medical aid and critical supplies at a time of need.

During the hibernation period, Fernandes said it has taken "significant measures" as a group while also reaching out externally for assistance to ensure its working capital remains intact.

“Internally, we have embarked on headcount rationalisation for leaner operations, given the current demand for air travel and expectations on recovery. Internal cost-cutting efforts include a group-wide temporary salary reduction of between 15% to 75%. All in all, the airline expects at least 50% reduction in its cash expenses this year.

Meanwhile, it has also been presented with proposals in various forms of capital raising, be it debt or equity. Fernandes said it is in ongoing discussions with numerous parties, including investment banks, lenders and interested investors in seeking a favourable outcome for the group.

“In conclusion, the impact of Covid-19 pandemic on the Company is never taken lightly, as does the trust and support put into us. The management has been working tirelessly to ensure the sustainability of our business operations. With the confidence of our stakeholders and business partners, we are determined to move forward in this new normal. We are positive that the proactive mitigating actions we have implemented as well as our consistency in transforming the company would aid us in recovering and overcoming this operating environment," Fernandes said.

On 7 July, Messrs Ernst & Young issued an unqualified audit opinion on material uncertainty relating to the ongoing concern in respect of AirAsia's audited financial statements for the financial year ended 31 December 2019. According to the Bursa filing, the auditor said that the airline had a net loss of RM283 million for FY 2019 and the current liabilities exceeded its current assets by RM1,843 million. 

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